Rollovers Under the bill, the Treasury Department may permit distributions from qualified retirement plans of employee contributions to be rolled over to another such plan or to an IRĂ. IRA distributions Under the bill, certain assets in IRAs may not be distributed without the consent of the IRA owner. The assets subject to this rule are assets transferred from a qualified retirement plan and assets in a SEP. An exception is provided for distributions in the form of a 50-percent qualified joint and survivor annuity or a single life annuity to the extent that such distributions are required by the minimum distribution rules. Spousal rights Present law provides an individual with certain rights to survivor benefits with respect to his or her spouse's interest in qualified plan assets. The bill extends these rights to IRAs and tax-sheltered annuity contracts by treating such arrangements as nonpension defined contribution plans. However, with respect to IRAs, such treatment only applies to assets transferred from a qualified retirement plan and assets in a SEP. IRA pension plans The bill provides that pension plans consisting of one or more IRAS are subject to certain requirements under Title 1 of ERISA. Generally, IRA pension plans are to be treated as other pension plans under Title 1, except that the funding rules do not apply and only certain rules under Part 2 (generally relating to participation and vesting) apply. In general, the rules applicable under Part 2 are (1) the participation rules (with special rules for SEPs); (2) the prohibition on alienation or assignment; and (3) the vesting rules (with the modification that all interests must be 100 percent vested). Salary reduction SEPS Under certain circumstances, the bill allows employers to establish a new type of SEP that permits employees to reduce their salary and contribute the amount of such reduction to the SEP. This alternative arrangement is available to employers (other than State or local governments or tax-exempt organizations) not otherwise maintaining a qualified plan or qualified annuity plan. Under the bill, such salary reduction SEPs are subject to nondiscrimination rules that are similar to, but less restrictive than, the rules applicable under present law to salary reduction SEPS. The bill also modifies certain other nondiscrimination requirements for all SEPs, without regard to whether they allow salary reduction. Effective Date The bill is effective for plan years and taxable years beginning after December 31, 1991. 8. H.R. 2792 Tax Treatment of Indian Fishing Rights Present Law Various treaties, Federal statutes, and executive orders reserve to Indian tribes (mostly in the West and Great Lakes regions) rights to fish for subsistence and commercial purposes both on and off reservations. Because the treaties, statutes, and executive orders were adopted before passage of the Federal income tax, they do not expressly provide whether income derived by Indians from protected fishing activities is exempt from taxation. Indians generally are subject to Federal tax in the same manner as other U.S. citizens, absent a specific Federal exemption. Consequently, the Tax Court has ruled in three cases that income derived by Indians from protected fishing activities is taxable, and the Internal Revenue Service has assessed deficiencies in other cases. Explanation of the Bill The bill15 would provide that income derived by individual members of an Indian tribe, or by a qualified Indian entity, from fishing rights-related activity is exempt from Federal and State tax, including income, social security, and unemployment compensation insurance taxes.16 Fishing rights-related activities would be defined as any activity by a tribe or members of that tribe directly related to harvesting, processing, or transporting fish harvested in the exercise of fishing rights guaranteed to that tribe by treaty, Federal statute, or executive order. The bill would define a “qualified Indian entity" as an entity in which (1) all of the equity interests are owned by tribal members; (2) substantially all of the management functions are performed by tribal members; and (3) if the entity engages in any substantial processing or transporting of fish, at least 90 percent of the annual gross receipts are derived from the exercise of protected fishing 15 H.R. 2792 was passed by the House of Representatives on June 20, 1988. (See also H.Rpt. 100-312, Part 2.) 16 Individuals may derive exempt income through self-employed activities, as employees, or as owners of qualified Indian entities. (30) rights.17 An entity that failed to satisfy any of the criteria of a qualified Indian entity would not be eligible for the exemption from tax provided by the bill; any employee or owner of such an entity would not be eligible under the bill for tax exemption on income received from such entity. In the case of an individual tribal member or a qualified Indian entity, the bill would exempt from taxation only that income "derived" from fishing rights-related activities. Thus, both individual tribal members and qualified Indian entities would be required to allocate income and expenses among fishing rights-related activities and all other activities.18 Expenses and amounts otherwise deductible that were attributable to income that would be exempt under the bill could not be used by an individual or entity to offset any other income of the individual or entity. Likewise, income that is exempt from tax under the bill would be excluded in determining whether an individual was eligible for social security benefits or unemployment compensation. Income from Indian fishing activities protected by treaty, Federal statute, or executive order would be exempt from Federal taxes only to the extent provided for by the bill. If income from fishing rights-related activity is exempt from Federal tax, then the bill would prohibit imposition under State or local law of any tax on such income. (However, the bill would not limit exemptions from State and local taxes that may be broader than the exemption it provides.) Effective Date The bill would apply to all taxable years beginning before or after the date of enactment as to which the period of assessment has not expired. 17 A qualified Indian entity may be jointly owned by members of more than one Indian tribe, provided that the entity is engaged in fishing rights-related activity of each tribe of which the owners are members. If a jointly owned entity engages in substantial processing or transporting of fish, at least 90 percent of the annual gross receipts must be derived from fishing rights-related activities of tribes whose members own at least 10 percent equity interests in the entity. The bill does not affect the income of a tribal government received pursuant to the exercise of an essential governmental function (see Code secs. 115 and 7871; Rev. Rul. 67-284, 1967-2 C.B. 55, 58). However, wages paid to an Indian who was employed by an entity that was owned by his or her tribal government and that engaged in fishing rights-related activities could be exempt from tax under the bill only if the entity satisfied the bill's criteria for a qualified Indian entity (treating the tribal government's ownership as ownership by tribal members). 18 However, allocations between exempt and taxable income would not be required where all but a de minimis amount of the income of the individual or entity was derived from protected fishing activities. |